360 Health CEO Chen Hua Outlines 'New Retail' Strategy for Pharmaceutical E-commerce in IPO Filing

Chen Hua, CEO of 360 Health

In the e-commerce landscape of 2017, the hottest concept was undoubtedly “New Retail.” At Alibaba’s Yunqi Conference in October 2016, Jack Ma first introduced the term “New Retail” in his speech, stating, “In the next ten to twenty years, there will be no such thing as e-commerce; only New Retail. In other words, online and offline channels must be integrated with logistics to give rise to true New Retail.”

After Jack Ma introduced the concept of “New Retail,” the term swept through the entire e-commerce industry. What it embodies is precisely Jack Ma’s roadmap for the future of e-commerce: only by integrating e-commerce, brick-and-mortar retail, and logistics can we create more diverse and enriched consumer scenarios.

VCBeat's360HealthCEOChen HuaDuring the visit, Chen Hua repeatedly mentioned “New Retail.”He stated, “‘New Retail’ is highly suitable for pharmaceutical e-commerce and can be regarded as the future path and development direction for the industry.”Furthermore, Chen Hua used numerous vivid case studies to explain to reporters the importance of “New Retail”—which integrates online, offline, and logistics channels—for pharmaceutical e-commerce.

Chen Hua has spent 17 years navigating the internet industry. He joined 111.com (Yi Yao Wang) as CEO in 2010 and moved to 360 Health in 2015. In mid-2016, 360 Health completed its Series A financing round of RMB 100 million. With seven years of experience in pharmaceutical e-commerce, Chen has gained an in-depth understanding of the sector’s history. The proposal of “New Retail” represents his strategic vision for the future of pharmaceutical e-commerce.

How to Integrate Online and Offline Channels? Chen Hua Provided Us with Many Examples. Having Previously Managed Brick-and-Mortar Pharmacies, Chen Hua Has an In-Depth Understanding of the Challenges and Areas for Improvement in Physical Pharmacy Operations. A Common Phenomenon in Offline Retail Pharmacies Is That Performance Can Be Weather-Dependent. Rainy Days Often Lead to Poor Sales, and During the Plum Rain Season, Monthly Sales Figures Tend to Be Disappointing. In Such Situations, Traditional Brick-and-Mortar Retailers Are Often Powerless to Respond Effectively.

In contrast, e-commerce platforms experience a surge in online sales during rainy weather, as people are unable to go out.Chen Hua believes that the emergence of the “New Retail” concept enables integration of online and offline platforms from a technological perspective.As a result, pharmacy sales are no longer hindered by weather conditions, thereby driving performance growth.

Another scenario is stockouts at offline pharmacies. In Chen Hua’s view, it is unacceptable for customers to leave a pharmacy empty-handed. Customers who enter a pharmacy certainly have purchasing needs; if they fail to find satisfactory products, it indicates inadequate service. This situation typically arises when customers have specific purchase requirements that the offline pharmacy cannot fulfill due to the absence of corresponding products. Given the limited shelf space in pharmacies, drug stockouts are a frequent occurrence.

If offline pharmacies can check the inventory of nearby chain pharmacies online or establish an e-commerce platform, their limited shelf space will effectively gain access to an unlimited warehouse. In this scenario, customer purchasing demands can be fully met. For urgent needs, the nearest chain store can deliver medications to the customer’s home within a few hours. For non-urgent orders, products can be shipped from the warehouse to the store for next-day pickup by the customer. By effectively implementing this “New Retail” model that integrates online platforms, offline stores, and logistics, pharmacies can undoubtedly retain their customers.

Chen Hua believes that for the pharmaceutical e-commerce sector to develop, it must not only achieve “New Retail” but also realize a “New Retail” model driven by artificial intelligence technology.

Chen Hua stated, “Demand for many products is transient, with poor cyclicality and predictability. However, in the pharmaceutical and broader healthcare sector, cyclicality and predictability are significantly stronger. This enables personalized, on-demand, predictive sales strategies based on long-term disease profiles and short-term fluctuations in physiological indicators.”

For example, if a customer is pregnant, an intelligent sales platform can recommend products step by step according to the changes during pregnancy and the growth of the fetus, based on the user's habits and brand preferences. Once the information is confirmed, the products can be delivered directly to the door. From the user's perspective, this represents a personalized and precise sales approach that makes them feel cared for, resulting in a better service experience.

Merchants aim to sell products to consumers using a strategy that emphasizes variety, speed, quality, and cost-efficiency, while ensuring delivery directly to customers’ hands. This requires the ability to track every customer, every employee, every product, and every order detail. By achieving such comprehensive tracking, merchants can leverage these data points to make intelligent, precise decisions. For instance, is inventory sufficient? Which products are most popular in different regions? Taking intelligence a step further, algorithms can forecast upcoming peak and off-peak sales periods based on time-series data, determining which products should have increased stock levels and which should be reduced, thereby avoiding unnecessary costs. With artificial intelligence handling these tasks, the entire commercial circulation becomes smoother, more efficient, and lower in cost. “This is a sales approach that feels really cool when you think about it,” said Chen Hua with a smile.

Action speaks louder than words—that is Chen Hua’s style. The next objective for 360 Health is to intensify efforts in the intelligent development of its supply chain, creating an intelligent pharmaceutical e-commerce solution. Intelligent management will be achieved across all operational workflows, including procurement, replenishment, logistics, and member management. With this intelligent transformation, the e-commerce platform will evolve from merely enabling on-demand sales to facilitating precision-forecasted, on-demand sales.

The informatization of the entire pharmaceutical distribution sector is currently deepening. In line with the requirements of “New Retail,” the boundaries between e-commerce and brick-and-mortar stores are becoming increasingly blurred. At present, traditional offline pharmacies are expanding into e-commerce, with many branded pharmacy chains launching official flagship stores online. Numerous pharmaceutical manufacturers have also begun to enter the retail channel by establishing their own online flagship stores. What drives this shift? Chen Hua attributes it to the ongoing reforms in China’s healthcare system, which he believes will grant patients greater autonomy in selecting their medications.

At the moment of purchase, patients hold the majority of decision-making power regarding which brand to choose and where to buy. Under such circumstances, the overall landscape of pharmaceutical retail will gradually shift. Historically, the primary channels for drug sales were through physicians and hospitals. Going forward, hospital-based drug sales will be increasingly squeezed by this trend, with volume shifting toward distribution channels.

Given the aforementioned circumstances and the booming pharmaceutical e-commerce sector, many branded pharmaceutical companies have begun venturing into this space. However, lacking in-house technical capabilities, they can leverage 360 Health’s expertise. The pharmaceutical e-commerce platform built by 360 Health serves both consumer-facing (C-end) users and business-facing (B-end) clients, namely pharmaceutical companies.360 Health offers a comprehensive pharmaceutical e-commerce solution capable of integrating with all major platforms, including Tmall and JD.com, providing tailored end-to-end supply chain solutions for pharmaceutical manufacturers and distributors.

“Although ‘New Retail,’ as described by Jack Ma, is a new term, its underlying concept is not novel; rather, he has provided a highly accurate distillation of what the entire industry has been doing. What 360 Health does is integrate online platforms, offline operations, and logistics, encompassing the seamless connection between online and offline channels, as well as the coordination between in-store sales and logistics,” said Chen Hua.

Driven by shifts in the broader business landscape, traditional retail enterprises are facing significant cost pressures. For instance, continuously rising rents account for approximately 17% of sales costs. There is substantial room for optimizing traditional business models; by adopting the “New Retail” approach and integrating online and offline operations, companies can significantly reduce costs. For manufacturers, “New Retail” also enables direct-to-consumer sales.

360 E-commerce Cloud is a professional warehouse and distribution supply chain management system tailored by 360 Health for pharmaceutical e-commerce enterprises. It includes a series of related technical modules such as ERP, warehouse management, order management, supply chain management, customer relationship management, and micro-sites. With the support of the 360 E-commerce Cloud system, pharmaceutical companies can significantly reduce e-commerce operational costs while substantially enhancing customer experience.

In 2016, although the scale of pharmaceutical e-commerce continued to expand, offline channels remained the mainstream for both drugs and medical devices. The overall market for online drug sales accounted for less than one-tenth of the total pharmaceutical market, with pharmaceutical manufacturers and wholesalers dominating the sector; retail sales directly targeting end consumers amounted to only a few hundred million yuan. Pharmaceutical e-commerce is one of the segments with the lowest e-commerce penetration rates across all e-commerce sectors. Coupled with the bankruptcy of Yaogeli last year, many industry insiders remain pessimistic about the future of pharmaceutical e-commerce. In response to these industry concerns, Chen Hua presented a different perspective.

During the conversation, Chen Hua revealed that although 360 Health was established only recently, it is currently profitable—a considerable achievement for an internet company. Many enterprises secure substantial investment during periods of shifting industry trends, but if they fail to establish viable business and revenue models, they are destined to fail once the hype subsides.

In Chen Hua’s view, it is extremely difficult for a startup, particularly an e-commerce enterprise, to achieve profitability within a short period. 360 Health has adopted a dual-pronged strategy, structuring its operations into two segments: To C (consumer-facing) and To B (business-facing). The C-end business is the pharmaceutical e-commerce platform “360 Haoyao,” which sells both self-operated and third-party pharmaceutical products to individual consumers. The B-end business is “360 E-commerce Cloud,” a comprehensive e-commerce platform solution tailored specifically for pharmaceutical e-commerce companies. To date, 360 Health’s B-end business has expanded rapidly, providing system services to dozens of well-known manufacturers, largely due to the company’s proprietary core technologies.

Chen Hua believes that the low e-commerce penetration rate in the pharmaceutical industry is due to certain objective reasons.

First, the vast majority of pharmaceutical sales in China take place in hospitals. This segment, which accounts for 70%–80% of the market, remains largely inaccessible to e-commerce platforms.

Second, in the traditional sector of retail pharmaceutical sales at the point of care, most pharmacies accept medical insurance payments. Therefore, residents typically prioritize offline pharmacies that allow for medical insurance reimbursement when purchasing medications.

Third, traditional pharmaceutical retail stores have made significant efforts over many years to provide excellent service and establish a comprehensive community presence. Compared with other goods, residents’ demand for purchasing medicines is easily met through offline channels.

Fourth, the primary consumers of pharmaceuticals are the elderly, for whom purchasing medications online presents considerable difficulties.

Finally, licensing restrictions have also impacted the development of pharmaceutical e-commerce.

Although the development of pharmaceutical e-commerce has been constrained by the many objective conditions mentioned above, Chen Hua has remained a steadfast bull, firmly optimistic about the future of pharmaceutical e-commerce.

“We can also observe some positive trends in the pharmaceutical e-commerce sector. In recent years, the absolute growth of pharmaceutical e-commerce has been rapid, with major e-commerce companies having launched dedicated pharmaceutical categories. If the national integration of medical insurance systems is achieved and pilot programs for online medical insurance payments prove successful, the flow of prescription drugs from hospitals to out-of-hospital retail pharmacies will accelerate, driving significant advancement in pharmaceutical e-commerce. Although elderly individuals may face challenges using computers, smartphones present a relatively low barrier for them. Once the habit of online shopping is established, the volume of pharmaceutical e-commerce transactions will inevitably rise.” Chen Hua believes that the development environment for pharmaceutical e-commerce is gradually improving.

Regarding the bubble phenomenon that emerged in the pharmaceutical e-commerce sector last year, Chen Hua believes it was an inevitable part of the industry’s development process—the bursting of a bubble. Investment in the internet healthcare sector showed clear signs of bubbling between 2014 and 2015. Many internet healthcare companies that secured funding were unable to realize not only viable business models but even revenue models. Consequently, the bursting of this bubble was a natural outcome.

With over a decade of experience in the internet industry, Chen Hua has long since distilled the developmental patterns of the digital sector. These phenomena do not indicate the failure of pharmaceutical e-commerce; rather, every niche within the internet industry undergoes such a cycle. Chen Hua summarizes this trajectory as the “Three Ones” pattern: a rush to enter, a scramble to exit, and a messy aftermath.

From a policy perspective on pharmaceutical e-commerce, Chen Hua believes that national policies have been becoming increasingly liberal. The abolition of approval requirements for the Class B and Class C licenses for online drug transaction services will bring new benefits to the pharmaceutical e-commerce sector. Lowered entry barriers will inject new market forces into the industry. Companies that previously failed to obtain these licenses are now incorporating e-commerce modules into their business operations, transitioning from traditional single-channel retail models to hybrid new retail approaches. This shift toward “new retail” also presents an opportunity for 360 Health.

In 2017, 360 Health did not rest on its laurels.Chen Hua revealed that 360 Health will launch a major product in the third quarter of this year, thereby initiating new plans and strategic arrangements.Chen Hua believes, “For internet companies to survive, they must innovate. They must firmly respect each customer, listen to their voices, address their pain points, and meet their needs.” This is Chen Hua’s business philosophy, and also what 360 Health strives to achieve.